Exposing Ideas to the Envelope of Serendipity

Monday, August 3, 2009

Well, the magic milestone at $SPX 1,000 has been tagged, and now we wait to see whether that accomplishment will mark at least a short-term ceiling for this exhaustive rally. So far, the inverse head & shoulders pattern in the Dow and $SPX have followed the game plan quite nicely; it would still be constructive to see an orderly pullback to the neckline of the pattern get underway before long, however. There is a small gap just above here that may get filled in the process, but I would then be very cautious about entering new long positions in the very near-term. While the magnitude of the rally up off the March lows may defy all logic, our job as traders is to pay attention to what the market is telling us (and showing us) and not to indulge our ego or desire for rational markets. Beyond the need for consolidation, there are many bullish bases populating the market, and commodities in particular are breaking out every which way as the dollar continues to plummet to new lows.

Positive chart signs or not, the market is overextended, and stops on longs should be in place at all times up here. Below is an updated chart of the $SPX along with the key levels to monitor near-term.

Well, the magic milestone at $SPX 1,000 has been tagged, and now we wait to see whether that accomplishment will mark at least a short-term ceiling for this exhaustive rally. So far, the inverse head & shoulders pattern in the Dow and $SPX have followed the game plan quite nicely; it would still be constructive to see an orderly pullback to the neckline of the pattern get underway before long, however. There is a small gap just above here that may get filled in the process, but I would then be very cautious about entering new long positions in the very near-term. While the magnitude of the rally up off the March lows may defy all logic, our job as traders is to pay attention to what the market is telling us (and showing us) and not to indulge our ego or desire for rational markets. Beyond the need for consolidation, there are many bullish bases populating the market, and commodities in particular are breaking out every which way as the dollar continues to plummet to new lows.

Positive chart signs or not, the market is overextended, and stops on longs should be in place at all times up here. Below is an updated chart of the $SPX along with the key levels to monitor near-term.

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